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Lecture 8

HON 1302 Lecture Notes - Lecture 8: Marginal Revenue, Marginal Cost, Variable CostPremium

2 pages68 viewsSpring 2017

Department
HON - HONORS
Course Code
HON 1302
Professor
Tomic
Lecture
8

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Microeconomics
Chapter 8 - Short Run Costs and Output Decisions
Symmetry between Revenues and Cost Definitions
Definitions:
Total Revenue consists of all the revenues received by a firm
o Demand = revenue side of firm
Total Cost = the sum of all costs for a firm
o Supply = cost side of firm
Marginal means additional or incremental
o Marginal revenue or costs is always the change in total divided by the change in
quantity
o Marginal measurements allows firms to look at how each unit contributes to a
firms costs and revenues
Price = what you pay for something
Cost = what you spend to produce something
Types of Costs
1. Fixed Costs
a. Costs a firm must pay regardless of sales
b. Include rent, electricity, heating, etc.
2. Variable Costs
a. Costs that depend on how much output is produced in a firm
b. Include labor, equipment, etc.
c. Most items that go into a production process are variable costs
Short Run vs. Long Run
Short Run
Doesn’t imply a duration of time defined by days, hours, minutes, etc.
Refers to the amount of time it takes a firm to change its variable cost
Revenue
Costs
Total Revenue = Price X Quantity
Total Cost = Costs X Quantity
Marginal Revenue = Revenue received by a
firm from selling an additional unit
Marginal Cost = Cost of producing an
additional unit
Marginal Revenue =
(Change in total revenue)/Change in Quantity)
Marginal Cost =
(Change in costs)/(Change in Quantity)
Average Revenue =
(Total Revenue)/(Quantity)
Average Costs =
(Total Cost)/(Quantity)
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